Eleven people died when a hot air balloon burst into flames and crashed in New Zealand's worst air accident for more than three decades.

Witnesses reported seeing flames rising 10 metres (32ft) from the balloon's basket before it came down near farmland close to the town of Carterton, about 80km (50 miles) northeast of Wellington on New Zealand's North Island.

The balloon, which was on a scenic flight of the area and was carrying a mixture of locals and visitors, including five couples, came down after a fire on board, according to police.

One man who saw the dark blue and maroon striped balloon as it was above some trees described seeing flames bursting from its basket as it plummeted to the ground. "There were flames licking up the side of the basket, right up the guy ropes," David McKinlay told TVNZ.

When the flames reached the canopy, the balloon plunged to the ground, he said. "There was a big, long pencil-like flame maybe 20 metres long, heading towards the ground at a terrible speed."

Another witness said he had waved to the passengers as the balloon passed overhead before it "clipped a power wire and tried to go up, then they've sort of gone across the road then it's caught fire."

Other witnesses said they saw people appearing to try to jump out of the basket after the balloon hit power lines.

Officials said the stricken balloon had hit power lines as it fell, causing electricity cuts in the area for about 20 minutes.

Police, who were first alerted to the crash at about 7.30am on Saturdaytoday local time, said they have no details yet of what caused the crash in clear, bright conditions with minimal wind. They said they received about half a dozen calls from residents reporting the balloon – a Cameron A-210, which can carry 10 passengers plus one pilot – was in difficulty.

The New Zealand Herald, which quoted a senior police official as saying that a fire had ignited on board, reported that the owner of the balloon was thought to be Lance Hopping, the operator of Ballooning New Zealand Ltd, although it is not known if he was on board the flight. He has more than 1,000 hours of commercial ballooning experience. The region is well known for its hot air ballooning and Hopping is the safety manager of the popular Balloons Over Wairarapa event, according to organiser Jonathan Hooker.

New Zealand's transport accident investigation commission has launched an inquiry into the incident.

It is the worst New Zealand aviation disaster since 1979, when a sightseeing flight from Auckland collided with Mount Erebus on Ross Island, Antarctica, killing all 237 passengers and 20 crew on board.